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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

Commission file number: 000-21319

Lightbridge, Inc.

(781) 359-4000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ         No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes þ         No o

     The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 28, 2002 was $233,198,605, based on a total of 27,597,468 shares held by nonaffiliates and on a closing price of $8.45 as reported on The Nasdaq Stock Market (National Market System).

     The number of shares of common stock outstanding as of March 20, 2003 was 27,136,365.

DOCUMENTS INCORPORATED BY REFERENCE

     The registrant intends to file a definitive proxy statement pursuant to Regulation 14A with regard to its 2003 annual meeting of stockholders or special meeting in lieu thereof within 120 days of the end of the fiscal year ended December 31, 2002. Certain portions of such proxy statement are incorporated by reference in Part III of this Form 10-K.

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      THIS ANNUAL REPORT ON FORM 10-K CONTAINS “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE WORDS “BELIEVES,” “ANTICIPATES,” “PLANS,” “EXPECTS” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, INCLUDING THE FACTORS SET FORTH BELOW IN “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — RISK FACTORS,” THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS OF LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS. LIGHTBRIDGE UNDERTAKES NO OBLIGATIONS TO UPDATE ANY FORWARD-LOOKING STATEMENTS IT MAKES.

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PART I

Item 1.     Business

      Lightbridge, Inc. (“Lightbridge” or the “Company”) develops, markets and supports a suite of products and services for communications providers that supports the customer lifecycle, including customer qualification and acquisition, risk management, prepaid billing, mobile data management and authentication services. Lightbridge’s software-based solutions are delivered primarily on an outsourced or service bureau basis. These outsourced or service bureau solutions together with the Company’s TeleServices offerings comprise the Company’s transaction business. Lightbridge’s transaction-based solutions provide multiple, remote, systems access for workflow management, along with centrally managed client-specified business policies, and links to client and third-party systems. Lightbridge also derives revenues from software licensing, consulting and maintenance services, and hardware sales. While its solutions historically have been delivered primarily to wireless carriers, Lightbridge also provides solutions to wireline carriers and non-carrier clients.

      Lightbridge offers online, real-time transaction processing and call center services to aid communications clients in qualifying and activating applicants for service, as well as software-based point-of-sale support services for a variety of distribution channels, including dealers and agents, mass market retail stores, and Internet commerce. Lightbridge also offers services designed to authenticate users engaged in mobile and online transactions. Lightbridge develops and implements interfaces that integrate its systems with client and third-party systems, such as those for billing, point-of-sale, activation and order fulfillment. Lightbridge also maintains and has access to databases used to pre-screen applicants and online users for fraud and provides software used to monitor subscriber call activity for fraud. In addition, Lightbridge has a global telecommunications consulting practice that provides clients with solution development and deployment services, and business advisory consulting. Lightbridge also offers to wireless telecommunications carriers its PrePay billing system that is designed to integrate with the upcoming Wireless Intelligent Network standards and offer the capability for subscribers to replenish their prepaid accounts.

      On February 22, 2002, a wholly owned subsidiary of Lightbridge acquired all of the assets and certain of the liabilities of Altawave Inc. (“Altawave”) in exchange for the payment of $4.0 million in cash, plus up to an additional $6.0 million payment contingent on the achievement of certain revenue goals. No contingent payments were required to be made in 2002 in connection with the Altawave acquisition. The technology acquired from Altawave includes solutions that offer wireless carriers a service platform for the development and management of data content and applications.

      In June 2002, the Company announced that it was reducing its workforce by seven percent and consolidating its Waltham, Massachusetts call center operations into its Lynn, Massachusetts and Broomfield, Colorado facilities by the end of 2002.

      In March 2003, the Company announced that it would be streamlining its existing Broomfield, Colorado call center operations into its Lynn, Massachusetts facility and a smaller facility in Broomfield, Colorado by the end of May 2003. The Company plans to record a restructuring charge of approximately $100,000 for workforce reductions in the first quarter of 2003 and approximately $900,000 for facilities reductions and capital equipment write-offs in the second quarter of 2003.

      Lightbridge was incorporated in Delaware in June 1989 under the name Credit Technologies, Inc. and in November 1994 changed its name to Lightbridge, Inc. Lightbridge sells and markets its products and services throughout the world both directly and through its wholly owned subsidiaries. Unless the context requires otherwise, references in this Annual Report on Form 10-K to “Lightbridge,” the “Company,” “we,” “us” and similar terms refer to Lightbridge, Inc. and its subsidiaries.

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      ALIAS, ALTALINKS, FRAUDBUSTER, FRAUD CENTURION, FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo, PHONEPRINT and PROFILE are registered trademarks of Lightbridge, and @RISK, ALTAWAVE, CAS, CORSAIR, CUSTOMER ACQUISITION SYSTEM, INSIGHT, LIGHTBRIDGE CITADEL, LIGHTBRIDGE MOBILE DATA MANAGER, LIGHTBRIDGE ONGUARD, PHONEFUEL, POPS, PREPAY, RETAIL MANAGEMENT SYSTEM, RMS and LIGHTBRIDGE TELESERVICES are trademarks of Lightbridge. All other trademarks or trade names appearing in this Annual Report on Form 10-K are the property of their respective owners.

Business Segment Data

      Based upon the way management and the Board of Directors monitor operations, the Company operates in four distinct segments, including the transaction business, the software license business, the consulting and service business, and the hardware business. Within these four segments, performance is measured based on revenues and gross profit realized from each segment. Information about revenues, cost of revenues, and gross profit of each segment is shown separately on the statement of operations included in the Company’s consolidated financial statements and discussed below in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Information about costs and expenses other than costs of revenues is not reported by segment. There are no transactions between segments.

      In addition, information concerning the four segments in which Lightbridge operates is set forth on page F-12 and F-13 of “Notes to Consolidated Financial Statements.”

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Products and Services

      Lightbridge’s suite of software and network-based solutions helps communications providers and online businesses deploy integrated, customized solutions in support of their operational business processes. Lightbridge offers its products and services in six broad solutions groups:

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Customer Qualification and Acquisition

      Lightbridge® Customer Acquisition System^SM (“CAS^TM”) offers online, real-time transaction processing services for applicant credit qualification and service activation.

      Introduced in 1989 and enhanced over time, CAS enables a carrier to close a sale at the time the customer is ready to purchase by qualifying applicants, screening for subscriber fraud and activating service quickly. Although CAS typically requires no human intervention beyond the initial data entry, it can include analyst intervention in carrier-specified situations. When intervention is required, CAS routes the “exception data” to a queue in order to manage workflow.

      CAS accepts applicant information online from retail stores and a variety of other carrier distribution points. Once CAS receives the application, it can qualify the applicant for service using both Lightbridge proprietary databases and external sources, such as credit bureaus. CAS validates the applicant’s identification and determines creditworthiness based on client-specified business policies. If CAS identifies an issue, it electronically routes the application to a Lightbridge or carrier analyst for review and action. When the analyst makes a decision, CAS notifies the point-of-sale agent. If the applicant wants to activate service at that time, CAS verifies the information necessary to establish the billing account and activate service and then transmits it to the carrier’s billing and activation systems. Throughout the process, CAS routes the application and information to system components and individuals in a secure, controlled environment.

      CAS includes the following fully integrated modules:

	•	InSightTM is a database containing information about a carrier’s current accounts, previous accounts, previous applicants and preapproved applicants. InSight can decrease a carrier’s costs for evaluating a prospective subscriber by using carrier-controlled data points such as subscriber payment histories rather than third-party data points, such as credit bureau reports, or manual review processes.
	•	CAS interfaces deliver data from the point of sale directly to CAS for decisioning. If manual intervention is required, data is presented to the appropriate person. Once the decision is made, CAS communicates it to the point-of-sale agent.

	Lightbridge® POPSTM — a browser-based point-of-sale application typically used in carrier-owned or dealer store locations. POPS runs over the Internet or an intranet and features a graphical user interface (“GUI”) that allows even inexperienced sales staff to qualify applicants quickly and activate service via a dial-up or network connection to CAS.
	Lightbridge® Retail Management SystemTM (“RMSTM”) — a point-of-sale application that helps telecommunications retailers manage the sale of telecommunications products more efficiently. RMS handles credit screening, transaction and payment processing, service activation, cash drawer management, inventory and purchasing management and management reporting.
	Lightbridge® Speech Interface — a point-of-sale application used in carriers’ agents’ stores or kiosks. Speech Interface converts voice information to text to allow even inexperienced sales staff to qualify applicants quickly via a connection to CAS.
	Credit Workstation — a character-based workstation that allows a carrier’s credit analyst to enter information or to evaluate applications that require manual review.
	Browser Interface — allows a carrier’s credit analyst to enter information or to evaluate applications that require manual review via a Lightbridge developed GUI.
	Activation Workstation — allows the user to review, correct and reprocess activation requests returned from the billing system because of an error.
	Fulfillment Workstation — allows the user to fulfill orders for wireless handsets and accessories at a remote or third-party fulfillment center.

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      CAS service modules are priced on a per transaction, per qualification or per activation basis, or, in the case of application modules, on a licensed basis. Fees for CAS services or applications may vary with the term of the contract, the volume of transactions, the other products and services selected and integrated with CAS services, the configurations selected, number of locations licensed or degree of customization required.

      Lightbridge TeleServices encompasses a range of call center solutions for the subscriber acquisition and activation process. TeleServices offerings include call center solutions for credit decisions and activations, analyst reviews, telemarketing to existing subscribers, back-up and disaster recovery for acquisition and activation services, and customer care. TeleServices solutions can be provided using CAS or a carrier’s own customer acquisition system. Lightbridge’s clients can integrate TeleServices solutions into their existing sales and distribution strategies to support special projects without the overhead of building and maintaining call centers.

      TeleServices solutions are priced on a per transaction or per minute basis and may vary with the term of the contract, the volume of transactions, the number of minutes and the other products and services selected and integrated with the solutions.

      Authentication services offer carriers and online merchants the ability to pre-screen and authenticate the identity data of users engaged in mobile and online transactions. Lightbridge offers the following authentication services on an Application Service Provider (“ASP”) model:

	•	Lightbridge® CitadelTM: A service that allows clients to authenticate the identities of users involved in mobile and online transactions.
	•	Lightbridge® OnGuardTM: A service that allows clients to pre-screen users involved in mobile and online transactions for potential fraud.

      Authentication services are priced on a per transaction basis and may vary with the term of the contract, the volume of transactions and the other products and services selected.

      Lightbridge’s risk management solutions are offered in two support models: an ASP or hosted model and a licensed software model.

      ASP Solutions. The ASP or hosted model supports real-time, online access to the Company’s proprietary databases, client proprietary databases and third-party databases in support of pre-activation applicant screening. These services are generally managed at Lightbridge facilities as outsourced offerings and include the following:

	•	AirWaves: A risk management score provided under agreement with RiskWise, L.L.C., that is designed to identify the most profitable customers, even among consumers whose financial history is non-existent or “too thin” for traditional risk assessment tools.
	•	Fraud Sentinel®: A suite of subscription fraud management tools, offered separately or in combination. Fraud Sentinel includes the following components:

	ProFile®, a proprietary, inter-carrier database of accounts receivable write-offs and service shut-offs, identifies applicants whose previous accounts were shut off or written off by a participating carrier and provides ongoing screening of existing subscribers.
	Fraud Detect, a multifaceted fraud detection tool provided under agreement with Trans Union L.L.C., analyzes data such as an applicant’s Social Security number, date of birth, address, telephone number and driver’s license information and identifies any discrepancies.

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	Fraud Detect Model, a fraud scoring tool developed jointly by Lightbridge and Trans Union L.L.C., is a neural-net scoring model that quantifies the probability that a subscriber will be written off.
	Fraud ID-Tect, a multifaceted verification tool provided under agreement with Trans Union L.L.C., verifies the subscriber data, identifies possible data entry errors, and alerts carriers to potential subscription fraud.
	@RiskTM, a database of suspect fraud information, identifies subscribers whose information matches suspect fraud information gathered from previous fraud investigations.
	InstantID, a multifaceted verification tool provided under agreement with RiskWise, L.L.C., highlights verified information and possible data entry errors, and alerts carriers to conditions that are often associated with identity theft.
	FraudPoint, a fraud detection tool provided under agreement with RiskWise, L.L.C., validates the data from the subscriber agreement to prevent subscription fraud and identify data entry errors.
	FraudDefender, a fraud scoring tool provided under agreement with RiskWise, L.L.C., rank-orders fraud risk based on a score and helps manage review rates.

      ASP solutions are priced on a per inquiry basis and may vary with the term of the contract and the volume of transactions. Additional fees may also be charged for consulting, implementation and support requirements of clients.

      Licensed Software Solutions. The licensed software model supports ongoing post-activation monitoring of subscriber call and account activity. These services may be managed at Lightbridge or at the client’s operation.

	•	Fraud Centurion®, a suite of post-activation fraud management components offered separately and in combination. Fraud Centurion components are designed to detect the fraudulent activity of active, existing subscribers on a carrier’s network. Fraud Centurion includes the following components:

	FraudBuster®, a fraud management profiler, identifies most commonly known types of fraud, such as cloning, subscription, tumbling and cellular theft. FraudBuster collects subscriber account information and analyzes call usage data from telecommunication switches and other data sources to identify fraudulent activity.
	Alias®, the industry’s first subscription fraud profiler, detects suspect account activity. Alias, when used with @Risk in a prescreening mode, represents the industry’s only integrated front-end to back-end solution for combating subscription fraud.
	Lightbridge® Predictive Intelligence uses high-performance algorithms, automatic feature selection and automatic model building to improve speed and accuracy in identifying fraudulent activity.

      Software solutions are priced on a licensed or hosted basis. Additional fees may also be charged for subscriber growth, annual maintenance, customization, consulting services, implementation, training and other support requirements requested by the client. Fees may vary with the term of the contract and the number of licenses.

Consulting Services

      Lightbridge Consulting Services (“LCS”), a global telecommunications practice, delivers full-service consulting for customer acquisition and retention, authentication, prepaid billing and risk management. It leverages Lightbridge’s market expertise and focus in telecommunications to help clients bring new services to market quickly, acquire low-risk subscribers and build customer loyalty. Clients can use LCS to supplement their resources with both domain expertise and project-based resources. The worldwide practice can support Lightbridge clients in the Asia Pacific region, Africa, Europe, Latin America and North America.

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      LCS capitalizes on Lightbridge’s established expertise with multiple carriers, across multiple geographic regions to provide clients with two distinct types of service:

	•	Solution Development and Deployment Services includes systems installation, integration, custom software development, project management and training services.
	•	Business Advisory Consulting includes management consulting services in customer acquisition, distribution and retention, and risk management.

      Consulting Services are priced on a time and materials or, in some cases, on a fixed fee basis.

Prepaid Billing

      Lightbridge® PrePay^TM allows carriers to sell services to customers who prefer to pay with cash or who do not qualify for credit and would otherwise pay high deposits. PrePay’s Wireless Intelligent Network (WIN) standards and architecture allow carriers to use existing switches without costly adjunct switches and voice trunk resources. The PrePay software architecture is designed to scale as the number of PrePay subscribers on a system grows. Because prepaid calls are controlled by the carrier’s existing switch, there is no impact on call setup times. Calls by prepaid subscribers are rated in real time, and an integrated, interactive, voice-response system automatically informs the subscriber when account funds are low. If a subscriber depletes prepaid funds during a call, PrePay automatically terminates the call and suspends service until the subscriber deposits additional funds. The subscriber can deposit additional funds over the air by using a prepaid phone card or by depositing or transferring cash at a replenishment center or website designated by the carrier.

      PhoneFuel^TM, a customer care extension to PrePay, allows PrePay clients’ subscribers to add to their PrePay balances directly from their bank accounts or credit cards. PhoneFuel supports Internet connections for PrePay subscribers, enabling these subscribers to pay for services and products using their prepaid account balance.

      Prepaid billing applications are priced on a licensed basis. Additional fees may also be charged for subscriber growth, annual maintenance, customization, consulting services, implementation, training and other support requirements requested by the client. Fees may vary with the term of the contract and the number of licenses.

Mobile Data Management

      Lightbridge® Mobile Data Manager^TM allows carriers to provision and manage customized, segmented data services offered to subscribers and allows enterprise clients to manage data accesses. It allows:

	•	Carriers to provision, administer and monitor subscribers, the data they access and the services to which they subscribe.
	•	Enterprises to offer secure data access.
	•	Subscribers to benefit from personalized mobile data services by means of a user interface.

      Mobile Data Manager is priced on a licensed basis. Additional fees may also be charged for subscriber growth, annual maintenance, customization, consulting services, implementation, training and other support requirements requested by the client. Fees may vary with the term of the contract and the number of licenses.

PhonePrint®

      PhonePrint offers wireless telecommunications carriers a cloning-fraud prevention system by using proprietary radio frequency signal analysis to identify attempted fraudulent calls and prevent cloners from gaining access to a carrier’s analog network. The Company no longer markets this product but it does provide replacement units for hardware systems. The Company does not expect PhonePrint revenues to be significant in 2003 or thereafter.

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Clients

      Lightbridge historically has provided its products and services to wireless carriers in the United States. In 1998, Lightbridge began to market its products and services to a broader range of telecommunications carriers operating around the world. In November of 2001, Lightbridge announced its mobile business strategy to meet the needs of non-carrier as well as carrier clients in the emerging mobile business market, and announced an agreement with VeriSign, Inc. (“VeriSign”) to authenticate the identity of consumers engaged in mobile and on-line transactions.

      Revenues attributable to Lightbridge’s 10 largest clients accounted for approximately 90%, 79% and 75% of Lightbridge’s total revenues in the years ended December 31, 2002, 2001 and 2000, respectively. The following Lightbridge clients accounted for more than 10% of total revenues in the years indicated:

      The Company’s PrePay billing system is sold primarily through a distribution agreement with Ericsson AB (“Ericsson”). Ericsson accounted for substantially all of the revenues derived from the PrePay system in the years presented. The loss of one or more of these major clients, a decrease in orders by one or more of them or a change in the combination of products and services they obtain from the Company, would adversely affect Lightbridge’s revenues, margins and net income.

      Lightbridge has agreements with many of its clients that provide for the purchase of various combinations of products and services over periods of one to five years. Although some of these agreements contain annual minimum payment requirements, such minimum payments are typically substantially less than the amount of revenue Lightbridge has historically received from a particular client and therefore provide only limited assurance of future sales. Lightbridge’s client agreements also often permit changes in the combination of products and services purchased by the client during the term of the agreement. Such changes can affect the revenues, margins and net income that Lightbridge achieves from quarter to quarter in its transaction business.

      Lightbridge has agreements with AT&T Wireless, Inc. (“AT&T”), Sprint Spectrum L.P. (“Sprint”) and Nextel Finance Company (“Nextel”) for the provision of credit decision services. The agreements with AT&T and Sprint were renewed in 2001 and extended in each case through December 31, 2003. The agreement with Nextel extends through January 15, 2004. Lightbridge’s distribution agreement with Ericsson was amended in 2002 and continues in effect until either party gives the other 180 days notice of cancellation.

      Because Lightbridge derives almost all of its revenues from telecommunications carriers, the demand for Lightbridge’s products and services is dependent, in major part, on the overall market demand for the products and services provided by telecommunications carriers. In particular, Lightbridge’s transaction business is dependent on the rate of new subscriber growth and the rate at which subscribers switch from one carrier to another, known as the churn rate. Accordingly, if the growth rate of the telecommunications industry continues to slow and the churn rate does not increase, sales of Lightbridge’s products and services could continue to decline.

Sales and Marketing

      Lightbridge’s sales strategy is to establish, maintain and foster long-term relationships with its clients, and to establish third-party sales alliances. Lightbridge’s sales and client services activities are led by relationship teams, many of which include a senior management team sponsor. Lightbridge employs a team approach to selling in order to develop a consultative relationship with existing and prospective clients. In addition to

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      Lightbridge’s software solutions typically require significant investment by the carrier with delays frequently associated with capital expenditures, and involve multilevel testing, integration, implementation and support requirements. Product managers, as well as other technical, operational and consulting personnel, are frequently involved in the business development and sales process. The teams conduct needs assessments and, working with the client, develop a customized solution to meet the client’s particular needs.

      The sales cycle for Lightbridge’s software products and services is typically nine to twenty-four months, although the period may be substantially longer in some cases, and is subject to a number of risks over which the Company has little control, including the carrier’s budgetary and capital spending constraints and internal decision-making processes, and general market and economic conditions.

      PrePay is sold primarily pursuant to a nonexclusive distribution agreement with Ericsson and also through a direct sales force.

      Service and technical support for Lightbridge products are provided through both direct field service and support personnel and distributors. A high level of continuing service and support is critical to the objective of developing long-term relationships with clients. Technical assistance is also provided as part of the standard support and service package that clients typically purchase for the length of their respective agreements. On-site installations and various training courses for distributors and clients are also offered.

Engineering, Research and Development

      Lightbridge believes that its future success will depend in part on its ability to continue to enhance its existing product and service offerings and to develop new products and services to allow clients to respond to changing market requirements. Lightbridge’s research and development activities consist of both long-term efforts to develop and enhance products and services and short-term projects to make modifications to respond to immediate client needs. In addition to internal research and development efforts, Lightbridge intends to continue its strategy of gaining access to new technology through strategic relationships and acquisitions where appropriate. Lightbridge spent approximately $29.3 million, $32.3 million and $29.3 million on engineering, research and development in the years ended December 31, 2002, 2001 and 2000, respectively.

Competition

      The market for products and services to wireless and other communications providers is highly competitive and subject to rapid change. The market is fragmented, and a number of companies currently offer one or more products or services competitive with those offered by Lightbridge. In addition, many telecommunications carriers are providing, or can provide internally, products and services competitive with those Lightbridge offers. Trends in the telecommunications industry, including greater consolidation and technological or other developments that make it simpler or more cost-effective for telecommunications carriers to provide certain services themselves, could affect demand for Lightbridge’s products or services and could make it more difficult for Lightbridge to offer a cost-effective alternative to a telecommunications carrier’s own capabilities. In addition, Lightbridge anticipates continued growth in the mobile and online business services industry and, consequently, the entrance of new competitors in the future.

      Lightbridge believes that the principal competitive factors in the communications provider industry include the ability to identify and respond to carrier, non-carrier and subscriber needs, timeliness, quality and breadth of product and service offerings, price and technical expertise. Lightbridge believes that its ability to compete also depends in part on a number of factors outside its control, including the ability to hire and retain employees, the development by others of products and services that are competitive with Lightbridge’s products and services, the price at which others offer comparable products and services and the extent of its competitors’ responsiveness to carrier, non-carrier and subscriber needs.

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Government Regulation

      The Federal Communications Commission (“FCC”), under the terms of the Communications Act of 1934, regulates interstate communications and use of the radio spectrum. Although Lightbridge is not required to and does not hold any licenses or other authorizations issued by the FCC, the domestic telecommunications carriers that constitute Lightbridge’s clients are regulated at both the federal and state levels. Federal and state regulation may decrease the growth of the telecommunications industry, affect the development of the wireless markets, limit the number of potential clients for Lightbridge’s services, impede Lightbridge’s ability to offer competitive services to the telecommunications market, or otherwise have a material adverse effect on Lightbridge’s business, financial condition, results of operations and cash flows. Changing laws and regulations have caused, and are likely to continue to cause, significant changes in the industry, including the entrance of new competitors, consolidation of industry participants, the introduction of bundled wireless and wireline services and the introduction of local number portability (“LNP”) in late 2003. Those changes could in turn subject Lightbridge to increased pricing pressures, decrease the demand for Lightbridge’s products and services, increase Lightbridge’s cost of doing business or otherwise have a material adverse effect on Lightbridge’s business, financial condition, results of operations and cash flows. The telecommunications industry outside the United States is also subject to government regulation, which could have similar effects on Lightbridge’s ability to increase or maintain its penetration of international markets.

      In addition, privacy legislation including the Gramm-Leach-Bliley Act (“GLBA”) and regulations thereunder affect the nature and extent of the products or services the Company is able to provide to clients as well as the Company’s ability to collect, monitor and disseminate information subject to privacy protection. Consumer legislation such as the Fair Credit Reporting Act (“FCRA”) and Equal Credit Opportunity Act (“ECOA”) and state laws also affect the nature and extent of the products or services the Company is able to provide to clients.

Proprietary Rights

      Lightbridge’s success is dependent upon proprietary technology. Lightbridge has traditionally relied on a combination of copyrights, patents, the law of trademarks, trade secrets and employee and third-party non-disclosure agreements to establish and protect its rights in its software products and proprietary technology. Lightbridge protects the source code versions of its products as trade secrets and as unpublished copyrighted works, and has internal policies and systems designed to limit access to and require the confidential treatment of its trade secrets. Lightbridge provides its software either on an outsourcing basis or under license agreements that grant clients the right to use, but contain various provisions intended to protect Lightbridge’s ownership of and the confidentiality of the underlying copyrights and technology. Lightbridge requires its employees and other parties with access to its confidential information to execute agreements prohibiting unauthorized use or disclosure of Lightbridge’s technology. In addition, all of Lightbridge’s employees are required as a condition of employment to enter into confidentiality agreements with Lightbridge.

      Lightbridge currently has several issued U.S. and foreign patents and applications pending in the U.S. Patent and Trademark Office and with certain foreign regulatory bodies. There can be no assurance that any pending patent applications will result in the issuance of any patents, or that Lightbridge’s current patents or any future patents will provide meaningful protection to Lightbridge.

      There can be no assurance that the steps taken by Lightbridge to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. It may be possible for unauthorized parties to copy certain portions of Lightbridge’s products or reverse engineer or obtain and use information that Lightbridge regards as proprietary. Existing copyright and trade secret laws and patents issued to Lightbridge offer only limited protection. In addition, the laws of some foreign countries do not protect Lightbridge’s proprietary rights to the same extent as do the laws of the United States.

      Lightbridge’s competitive position may be affected by limitations on its ability to protect its proprietary information. However, Lightbridge believes that patent, trademark, copyright, trade secret and other legal protections are less significant to Lightbridge’s success than other factors, such as the knowledge, ability and

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      Certain technologies used in Lightbridge’s products and services are licensed from third parties. Lightbridge generally pays license fees on these technologies and believes that if the license for any such third-party technology were terminated, it would be able to develop such technology internally or license equivalent technology from another vendor, although no assurance can be given that such development or licensing could be effected without significant delay or expense.

      Although Lightbridge believes that its products and technology do not infringe on any existing proprietary rights of others, there can be no assurance that third parties will not assert such claims against Lightbridge in the future or that such future claims will not be successful. Lightbridge could incur substantial costs and diversion of management resources with respect to the defense of any claims relating to proprietary rights, which could have a material adverse effect on Lightbridge’s business, financial condition, results of operations and cash flows. Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block Lightbridge’s ability to make, use, sell, distribute or market its products and services in the United States or abroad. Such a judgment could have a material adverse effect on Lightbridge. In the event a claim relating to proprietary technology or information is asserted against Lightbridge, Lightbridge may seek licenses to such intellectual property. There can be no assurance, however, that such a license could be obtained on commercially reasonable terms, if at all, or that the terms of any offered licenses will be acceptable to Lightbridge. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of Lightbridge’s products and, therefore, could have a material adverse effect on Lightbridge.

Employees

      As of January 31, 2003, Lightbridge had a total of 738 employees, of which 618 were full-time and 120 were part-time or seasonal. The number of personnel employed by Lightbridge varies seasonally. None of Lightbridge’s employees is represented by a labor union, and Lightbridge believes that its employee relations are good.

      The future success of Lightbridge will depend in large part upon its continued ability to attract and retain highly skilled and qualified personnel. Competition for such personnel can be strong, particularly for sales and marketing personnel, software developers and service consultants.

Additional Available Information

      Lightbridge’s principal Internet address is www.lightbridge.com. The Company’s web site provides a hyperlink to a third-party web site through which Lightbridge’s annual, quarterly and current reports, and amendments to those reports, are available free of charge. Lightbridge believes these reports are made available as soon as reasonably practicable after it electronically files them with, or furnishes them to, the Securities and Exchange Commission (“SEC”). The Company does not maintain or provide any information directly to the third-party web site, and does not check its accuracy. Copies of the Company’s SEC reports can also be obtained from the SEC’s web site at www.sec.gov.

      Lightbridge leases approximately 90,000 square feet in a single building in Burlington, Massachusetts for its principal administrative, sales, consulting, marketing and product development facility. This lease expires in 2005. The Company leases approximately 10,000, 21,000 and 30,000 square feet for product development facilities in Fremont and Irvine, California and Broomfield, Colorado, respectively. The Company also leases 29,000 and 16,000 square feet for call centers in Lynn, Massachusetts and Broomfield, Colorado. The Company’s Waltham, Massachusetts call center was closed in October 2002 and is under lease until September 30, 2003. In March 2003, the Company announced its plans to close its then existing Broomfield, Colorado call center which is under lease until December 31, 2004. The Company also leases approximately

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      Lightbridge is not a defendant in any material litigation.

      No matter was submitted to a vote of security holders during the quarter ended December 31, 2002.

PART II

      Shares of the Company’s common stock, $.01 par value per share, are quoted on The Nasdaq Stock Market under the symbol “LTBG.” The following table sets forth, for the calendar quarters indicated, the high and low sales prices per share of the common stock on the National Market System, as reported in published financial sources:

      As of March 20, 2003, there were 231 holders of record of common stock (which number does not include the number of stockholders whose shares are held of record by a broker or clearing agency but does include each such brokerage house or clearing agency as one record holder).

      The Company has never declared or paid any cash dividends on its common stock. The Company currently anticipates that it will retain future earnings, if any, to fund the development and growth of its business and therefore does not expect to pay any cash dividends in the foreseeable future.

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      The following selected financial data have been derived from the Company’s audited historical financial statements, certain of which are included elsewhere in this Annual Report on Form 10-K.

(1)	Consists principally of interest income. Includes a gain of $415 on the sale of an investment and a loss of $2,176 on the sale of assets, both in the year ended December 31, 1999.

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Critical Accounting Policies and Estimates

      Lightbridge’s discussion and analysis of its financial condition and results of operations are based upon Lightbridge’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of this Annual Report on Form 10-K requires Lightbridge to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of its financial statements, and the reported amounts of revenue and expenses during the reporting period. Lightbridge bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily derived from other sources. There can be no assurance that actual amounts will not differ from those estimates.

      Lightbridge has identified the policies below as critical to its business operations and the understanding of its results of operations.

      Revenue recognition. Lightbridge’s revenue recognition policy is significant because revenue is a key component affecting its operations. In addition, revenue recognition determines the timing of certain expenses, such as commissions and bonuses. Lightbridge follows specific and detailed guidelines in measuring revenue; however, certain judgments relating to the elements required for revenue recognition affect the application of its revenue policy. Revenue results are difficult to predict, and any shortfall in revenue, change in judgments concerning recognition of revenue, change in mix, amount of international sales or delay recognizing revenue could cause operating results to vary significantly from quarter to quarter.

      Allowance for doubtful accounts. Lightbridge must also make estimates of the uncollectability of its accounts receivable. An increase in the allowance for doubtful accounts is recorded when the prospect of collecting a specific account receivable becomes doubtful. Lightbridge analyzes accounts receivable and historical bad debts, customer creditworthiness, current domestic and international economic trends and changes in its customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, or if Lightbridge’s estimates of uncollectability prove to be inaccurate, additional allowances would be required.

      Income taxes. Lightbridge’s income tax policy records the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and the amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards. Lightbridge follows specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provides any necessary valuation allowances as required. If Lightbridge were to determine that it was unable to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period that such determination was made.

Overview

      Lightbridge develops, markets and supports a suite of products and services for communications providers that supports the customer lifecycle including customer acquisition and qualification, risk management, prepaid billing, mobile data management and authentication services.

      A majority of the Company’s revenues historically have been derived from clients located in the United States. The Company’s revenues are derived from transactions, software licensing, consulting and services, and hardware. Transaction revenues account for a majority of the Company’s revenues and were 66%, 59% and 51% of total revenues in 2002, 2001 and 2000, respectively. Software licensing and consulting and services revenues were an aggregate of 32%, 37% and 40% of total revenues in 2002, 2001 and 2000, respectively. Hardware revenues were 2%, 4% and 9% of total revenues in 2002, 2001 and 2000, respectively. During the three-year period from 2000 through 2002, Lightbridge’s total revenues decreased by 28.5% to $133.4 million from $186.6 million in 2000. This revenue decrease was driven primarily by decreases in volume of customer

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      Lightbridge’s transaction services revenues are derived primarily from the processing of applications for qualification of subscribers for telecommunications services and the activation of service for those subscribers. Over time, the Company has expanded its offerings from credit evaluation services to include screening for subscriber fraud, evaluating carriers’ existing accounts, interfacing with carrier and third-party systems and providing call center services. The Company also offers transaction services to pre-screen and authenticate the identity of users engaged in mobile and online transactions. Transaction services are provided pursuant to contracts with carriers and others, which specify the services to be utilized and the markets to be served. The Company’s clients are charged for these services on a per transaction basis. Pricing varies depending primarily on the volume and type of transactions, the number and type of other products and services selected for integration with the services and the term of the contract under which services are provided. The volume of processed transactions varies depending on seasonal and retail trends, the success of the carriers and others utilizing the Company’s services in attracting subscribers and the markets served by the Company’s clients. Transaction services revenues are recognized in the period in which the services are performed.

      The Company’s software licensing revenues consist of revenues attributable to the licensing of the Company’s CAS Application Modules, Risk Management, Prepaid Billing and Mobile Data Management software. Lightbridge’s CAS modules are designed to assist customers in interfacing with the Company’s transaction processing systems as well as to perform other point-of-sale and channel functionality. The Company’s Risk Management products are designed to assist carriers in monitoring subscriber accounts to identify activity that may indicate fraud. The Company’s Prepaid Billing system allows carriers to market and manage prepaid wireless services to customers. The Company’s Mobile Data Management solutions provide wireless carriers a platform for the development and management of data content and applications. The Company’s software products are licensed as packaged software products and each product generally requires incidental customization or integration with other products and systems to varying degrees. Software licensing revenues are recognized when persuasive evidence of an arrangement exists, delivery of the product has been made, and a fixed fee and collectibility have been determined.

      The Company’s consulting and services revenues historically have been derived principally from providing solution development and deployment services and business advisory consulting in the areas of customer acquisition and retention, authentication, prepay billing and risk management. Revenues from consulting services are generally recognized as the services are performed. Revenues from software maintenance contracts are recognized ratably over the term of the maintenance agreement and are reported as consulting and service revenues.

      The Company’s hardware revenues historically have been derived in connection with sales of its PrePay and PhonePrint products. Revenue from hardware is recognized upon shipment, unless testing, integration or other services are required, in which case it is recognized upon commissioning and acceptance of the product. Revenue from hardware sold in conjunction with software is deferred until the software revenue is recognized. The Company does not expect hardware revenues to be a significant component of revenue in the future.

      PhonePrint is a cloning fraud prevention system that operates on analog networks. As a result of the limited demand for the PhonePrint system and the Company’s decision to no longer actively sell or market the system, no significant revenues are expected from the product in the future.

      In both 2001 and 2002, the rate of subscriber growth in the wireless telecommunications industry declined and capital spending in the industry also experienced a slowdown and decline. The Company believes, based in part on reports of wireless telecommunications industry analysts, that the rate of subscriber growth will continue to slow in upcoming years and that the rate of subscriber churn will remain fairly constant. Lightbridge also expects that the capital spending slowdown and decline in the telecommunications industry will continue in 2003, and may extend into 2004. In order to add to its business, the Company seeks to expand its reach into the mobile data and mobile and online business markets. The Company is also aware of

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      On February 7, 2001 Lightbridge completed its merger with Corsair. In connection with the merger, Lightbridge issued an aggregate of approximately 10,270,000 shares of its common stock to Corsair stockholders. In addition, the Company assumed the obligation to issue, upon exercise of outstanding Corsair options, approximately 1,587,094 shares of common stock. In connection with the merger, the Company recorded a charge in the quarter ended March 31, 2001 of approximately $6.0 million, representing the cost of professional services and fees of approximately $5.7 million and costs associated with the termination of four employees of approximately $0.3 million. The merger with Corsair was accounted for as a pooling-of-interests and the financial statements were restated to include the accounts of Corsair with those of Lightbridge for all periods presented.

      In November of 2001, the Company announced that it was streamlining operations by closing its Palo Alto, California facility and consolidating research and development activities in its Irvine, California and Broomfield, Colorado locations. All other Palo Alto operations, including finance, support services and sales and marketing, were merged with functions in Irvine or Burlington, Massachusetts.

      On February 22, 2002, a wholly owned subsidiary of Lightbridge acquired all of the assets and certain of the liabilities of Altawave in exchange for the payment of $4.0 million in cash, plus up to an additional $6.0 million contingent on the achievement of certain revenue goals. No contingent payments were required to be made in 2002 in connection with the Altawave acquisition. The technology acquired from Altawave includes solutions that offer wireless carriers a service platform for the development and management of data content and applications. The results of Altawave have been included with those of Lightbridge from its date of acquisition.

      In June of 2002, the Company announced it was reducing its workforce by seven percent and consolidating its Waltham, Massachusetts call center operations into its Lynn, Massachusetts and Broomfield, Colorado facilities by the end of the 2002.

      In March of 2003, the Company announced that it was streamlining its existing Broomfield, Colorado call center operations into its Lynn, Massachusetts facility and a smaller facility in Broomfield, Colorado by the end of May 2003. The Company plans to record a restructuring charge of approximately $100,000 for workforce reductions in the first quarter of 2003 and approximately $900,000 for facilities reductions and capital equipment write-offs in the second quarter of 2003.

Customer Concentration

      During fiscal 2002, four of the Company’s clients each accounted for more than 10% of the Company’s total revenues. During fiscal 2001 and 2000, three of the Company’s clients each accounted for more than 10% of the Company’s total revenues. Revenues from these clients are as follows:

      Lightbridge expects that most of its revenues will continue to come from a relatively small number of clients for the foreseeable future, although the companies that comprise its largest clients in any given quarter may vary. Consequently, the Company’s revenues, margins and net income may fluctuate significantly from quarter to quarter based on the actions of a single significant client. A client may take actions that significantly affect the Company for reasons that the Company cannot necessarily anticipate or control, such as reasons

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      A loss of one or more of these major clients, a decrease in orders by one or more of these clients or a change in the combination of products and services they obtain from the Company would adversely affect Lightbridge’s revenues, margins and net income.

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Results of Operations

      The following table sets forth, for the periods indicated, certain financial data as a percentage of total revenues:

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      Revenues. Revenues and certain revenue comparisons for the years ended December 31, 2002 and 2001 were as follows:

      The decrease in transaction revenues of $15.6 million was due to slower subscriber growth experienced by the Company’s clients, resulting in a reduction in transaction volume, and to clients selecting fewer transaction products and services. The Company’s transaction revenues also declined as a result of reduced call volume and a change in the mix of services provided by Lightbridge’s TeleServices call centers. During the quarter ended June 30, 2002, the Company provided approximately $2.0 million of transaction services to WorldCom, Inc. (“WorldCom”), and did not record any related revenue due to doubts about collectibility stemming from WorldCom’s financial difficulties. The Company did not provide any services to or record any revenue from WorldCom during the third or fourth quarter of 2002. At December 31, 2002, WorldCom owed the Company approximately $2 million, all of which had been reserved.

      The Company’s transaction revenues will continue to reflect in large part the industry’s rate of growth of new subscribers as well as the rate of switching among carriers by subscribers (subscriber churn). Lightbridge believes, based in part on reports of wireless telecommunication industry analysts, that the rate of subscriber growth will continue to slow in upcoming years and that the rate of subscriber churn will continue to remain fairly constant. Lightbridge also believes that it may experience decreases in the demand for its TeleServices business and changes in the combination of services acquired by clients that could negatively affect transaction revenues in 2003.

      The decrease in software licensing revenues of $14.6 million was due to the continued capital spending slowdown in the telecommunications industry. Lower capital spending by carriers affected the sales of all Lightbridge software products. The Company expects that the capital spending slowdown and decline in the telecommunications industry will continue in 2003 and may extend into 2004.

      The decrease in consulting and services revenues of $9.0 million for the year ended December 31, 2002 was principally due to a decline in maintenance and services revenues related to PhonePrint, a legacy product. In addition, the decrease was also affected by a decline in software sales and the related integration, deployment, optimization and maintenance services provided in conjunction with software sales.

      The decrease in hardware revenues of $4.0 million was due to a decrease in the Company’s PrePay hardware sales, primarily because the version of PrePay software available since the second quarter of 2001 enables carriers to use locally sourced Interactive Voice Response Units (“IVRs”). In addition, hardware sales declined because a number of carriers continued to delay or cancel purchase decisions. The Company does not expect hardware revenues to be a significant component of revenue in 2003.

      Cost of Revenues. Cost of revenues consists primarily of personnel costs, costs of acquiring and maintaining systems and networks used in processing qualification and activation transactions (including depreciation and amortization of systems and networks) and amortization of capitalized software and acquired technology. In the future, cost of revenues may vary as a percentage of total revenues as a result of a number of factors, including changes in the volume of transactions processed, changes in the mix of transaction revenues between revenues from automated transaction processing and revenues from processing transactions

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      Cost of revenues and certain cost of revenues comparisons for the years ended December 31, 2002 and 2001 were as follows:

      Transaction cost of revenues decreased in 2002 from the prior year principally due to lower transaction revenues as a result of a lower volume of transactions processed through Lightbridge’s TeleServices call centers and a decrease in costs attributable to the Company’s staff reductions. Transaction cost of revenues was also affected by a shift in the mix of services provided to clients during the year ended December 31, 2002. Transaction cost of revenues increased as a percentage of total transaction revenues to 55.7% in 2002 from 53.4% in 2001. The increase in cost of transaction revenues as a percentage of transaction revenues was due to a change in the mix of services provided in the year ended December 31, 2002, as well as the level of fixed costs within the Company’s infrastructure, which resulted in lower gross profit margins as revenues declined. Certain of these fixed costs have been eliminated or reduced as a result of the Company’s restructurings in 2001 and 2002. Lightbridge believes that changes in the mix of services provided to clients will continue to affect transaction cost of revenues in 2003.

      Software licensing cost of revenue decreased in 2002 from the prior year due to the decline in software revenues. Software licensing cost of revenue increased as a percentage of total software licensing revenues increased to 12.2% in 2002 from 10.0% in 2001 due to lower software sales.

      Consulting and services cost of revenues decreased in 2002 from the prior year. Consulting and services cost of revenues also decreased as a percentage of total consulting services revenues to 42.1% in 2002 from 44.1% in 2001. The decrease in consulting and services cost of revenues was attributable to a decrease in consulting projects and revenue as well as a reduction in headcount associated with the June 2002 restructuring.

      Hardware cost of revenues decreased in 2002 from the prior year due to a decline in hardware revenues. Hardware cost of revenues as a percentage of total hardware revenue increased to 78.0% in 2002 from 70.7% in 2001 due to a decrease in hardware revenues.

      The Company expects that fluctuations in gross profit may occur primarily because of a change in the mix of revenue generated from the Company’s four revenue components, particularly revenues from software licensing and consulting and services.

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      Operating Expenses. Operating expenses and certain operating expense comparisons for the years ended December 31, 2002 and 2001 were as follows:

      Development. Development expenses include software development costs consisting primarily of personnel and outside technical services costs related to developing new products and services, enhancing existing products and services, and implementing and maintaining new and existing products and services. The decrease in development expenses for the year ended December 31, 2002 was due to cost savings associated with the closing of the Company’s Palo Alto, California facility as well as the reduction in headcount associated with the June 2002 restructuring. These cost savings were partially offset by the addition of engineering personnel necessary to support Lightbridge’s product and services development plans. Development expenses as a percentage of total revenues increased in 2002 from the prior year as a result of lower total revenues. The Company expects to continue to incur significant development expenses in 2003 and may experience an increase in such expenses for that period in connection with the further development of its existing products and services and development of new products and services.

      Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and travel expenses of direct sales and marketing personnel, as well as costs associated with advertising, trade shows and conferences. The decrease for the year ended December 31, 2002, was primarily due to headcount reductions from closing the Palo Alto, California facility and the June 2002 restructuring, coupled with a decrease in costs associated with lower revenue levels, such as commissions on sales.

      General and Administrative. General and administrative expenses consist principally of salaries of executive, finance, human resources and administrative personnel and fees for certain outside professional services. The decrease in general and administrative costs for the year ended December 31, 2002 was primarily due to a decrease in headcount associated with the closing of the Palo Alto facility, the June 2002 restructuring and the Company’s efforts to limit spending, partially offset by a write-off of a secured promissory note received by the Company in connection with a loan to an unrelated party in 1999. The Company wrote off the note receivable in 2002 because it believed that the note was uncollectible due to the adverse financial and operating condition of the maker and economic conditions. The increase in general and administrative expenses as a percentage of total revenues was due to lower revenues. The Company may experience an increase in general and administrative expenses in 2003 due to increased regulatory compliance requirements associated with operating as a public company and consumer credit and privacy regulations.

      In-Process Research and Development (“IPR&D”). In connection with the Altawave acquisition, the Company recorded a $1.6 million charge during the first quarter of 2002 for several IPR&D projects. The technology acquired from Altawave includes solutions that offer wireless carriers and enterprises a service platform for the development and management of data content and applications. The complexity of the technology lies in its comprehensive, secure and scalable characteristics. The research projects in process at the date of acquisition related to the development of the Mobile Data Manager (“MDM”) suite of products

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      The value of the projects was determined by an independent appraiser using the income approach. The discounted cash flow method was utilized to estimate the present value of the expected income that could be generated through revenues from the projects over their estimated useful lives through 2009. The percentage of completion for the projects was determined based on the amount of research and development expenses incurred through the date of acquisition as a percentage of estimated total research and development expenses to bring the projects to technological feasibility. At the acquisition date, the Company estimated that the MDM suite and CGA were approximately 70% and 32% complete, respectively, with fair values of approximately $1.0 million and $0.6 million, respectively. The discount rate used for the fair value calculation was 37% for the MDM suite and 40% for CGA. At the date of acquisition, development of the technology involved risks to the Company including the remaining development effort required to achieve technological feasibility and uncertainty with respect to the market for the technology.

      Lightbridge completed the development of the MDM suite in the quarter ended September 30, 2002, having spent approximately $150,000 on the project after the acquisition. Total cost to complete the CGA project after acquisition is estimated to be approximately $300,000, of which approximately $125,000 had been spent through December 31, 2002. CGA is expected to be completed by July 2003. If the development of the technology is not completed on schedule, the potential consequences to the Company may be increased development costs and increased competition from other companies that have competitive products in the market.

      Other Income, Net. Other income, net consists predominantly of interest income and decreased by 42.4% to $2.4 million in the year ended December 31, 2002 from $4.2 million in the prior year. This decrease was primarily due to a decline in interest rates.

      Equity in Loss of Partnership Investment. The Company has committed to invest up to $5.0 million in a limited partnership that invests in businesses within the wireless industry. To date, the Company has invested $953,000. The Company uses the equity method of accounting for this limited partnership investment. For the year ended December 31, 2002, the Company’s proportionate share of the loss of the limited partnership was $464,000.

      Provision for Income Taxes. Lightbridge’s effective tax rate was (2.9)% and 21.6% (excluding merger-related expenses) for the years ended December 31, 2002 and 2001, respectively. The 2002 tax provision was based upon the annual effective tax rate of 34.0%, offset by a reduction in the Company’s valuation allowance provided against certain acquired net loss carryforwards and an $802,000 benefit from research and development tax credits. The Company has approximately $10.4 million in loss carryforwards, principally the result of various acquisitions, against which a valuation reserve of approximately $10.3 million has been provided. Net deferred tax assets were approximately $6.7 million at December 31, 2002. If circumstances change so that recoverability of these assets appears unlikely, additional valuation allowances may be required. The Company recorded a net benefit from income taxes in 2002 due primarily to lower levels of profitability and the impact of a reduction in valuation allowances and credits.

      Net Income. Net income for 2002 was $3.6 million or 2.7% of revenues, and diluted earnings per share was $0.13 compared to net income in 2001 of $14.0 million or 7.9% of revenues and diluted earnings per share of $0.48. The 2002 decrease in net income from 2001 was primarily due to reduced revenue levels, partially offset by a reduction in operating expenses.

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              Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

      Revenues. Revenues and certain revenue comparisons for the years ended December 31, 2001 and 2000 were as follows: